The
Committee consisted of the following
Members:
Chairman:
Mr.
Edward O'Hara
Atkins,
Charlotte
(Staffordshire, Moorlands)
(Lab)
Barker,
Gregory
(Bexhill and Battle)
(Con)
Boswell,
Mr. Tim
(Daventry)
(Con)
Brown,
Lyn
(West Ham) (Lab)
Cawsey,
Mr. Ian
(Brigg and Goole)
(Lab)
Cohen,
Harry
(Leyton and Wanstead)
(Lab)
Heald,
Mr. Oliver
(North-East Hertfordshire)
(Con)
Hughes,
Simon
(North Southwark and Bermondsey)
(LD)
McNulty,
Mr. Tony
(Harrow, East)
(Lab)
Morden,
Jessica
(Newport, East)
(Lab)
Roy,
Lindsay
(Glenrothes)
(Lab)
Ruddock,
Joan
(Minister of State, Department of Energy and Climate
Change)
Thornberry,
Emily
(Islington, South and Finsbury)
(Lab)
Tredinnick,
David
(Bosworth)
(Con)
Wiggin,
Bill
(Leominster)
(Con)
Willis,
Mr. Phil
(Harrogate and Knaresborough)
(LD)
Anne-Marie Griffiths,
Committee Clerk
attended
the Committee
Second
Delegated Legislation
Committee
Tuesday
23 February
2010
[Mr.
Edward OHara in the
Chair]
Draft
CRC Energy Efficiency Scheme Order
2010
10.30
am
The
Minister of State, Department of Energy and Climate Change (Joan
Ruddock): I beg to move,
That the
Committee has considered the draft CRC Energy Efficiency Scheme Order
2010.
As
always, it is a pleasure to serve under your chairmanship,
Mr. OHara. The carbon reduction commitment makes
provisions that will drive forward energy efficiency and emissions
reductions in large organisations. It has been developed with
significant business and public sector input over the past four years.
The order is the first to be laid before Parliament under powers in the
Climate Change Act 2008 providing for the creation of trading
schemes.
The
challenge that climate change presents is vast and urgent, and reducing
emissions requires determined action. As a consequence, we passed the
2008 Act in this House. As well as making provisions for carbon budgets
and other measures to reduce our carbon emissions, it also provides the
legislative basis for the order, which will encourage participating
organisations to reduce their emissions and become more
energy-efficient. Energy efficiency is critical for the UKs
emissions reduction effort and provides a triple winsaving
energy, saving money and reducing
emissions.
An
analysis of the large private and public organisations sector by the
Carbon Trust in 2005 found significant potential for cost-effective
emissions reductions through energy efficiency. That has been borne out
by the trusts subsequent experience in advising organisations
of their opportunities in detail. Its most recent analysis of the
non-domestic building sector suggests that reductions of 70 to 75 per
cent. could be made by 2050 at no net cost, using methods and
technologies that are available today. The measures for reducing
emissions that represent the best value for money are to increase the
energy efficiency of heating and lighting, which together represent 89
per cent. of effective cost savings. Despite the abundant potential for
reductions, emissions from the sector have remained relatively constant
for the past 20 years.
In its
analysis, the trust found evidence that the introduction of energy
efficiency measures was being hampered by at least four obstacles:
insufficient financial incentives to reduce emissions, uncertain
reputational benefits of demonstrating leadership, split incentives
between landlords and tenants, and organisational inertia. The
disappointing rate of implementation of energy efficiency measures is
one of the reasons why the Government decided to introduce the CRC
energy efficiency scheme.
The CRC is
intended as a catalyst for action, and is designed specifically to
address the barriers. We therefore propose introducing the scheme this
April. It will cover large public and private sector organisations that
produce
approximately 10 per cent. of the UKs emissions, and will
stimulate changes in behaviour and infrastructure by introducing new
drivers tailored to overcome the barriers
identified.
Private
and public sector organisations that have at least one half-hourly
meter, settled on the half-hourly market, and that use more than 6,000
MWh of electricity through all their half-hourly meters will qualify
for the scheme. Roughly speakingthis is just a rule of
thumbthat means that organisations that spend around
£500,000 per annum on their energy bills are likely to be
covered by the
CRC.
The
Government will lead by example. All Departments will participate in
the scheme, even if they do not meet the qualification threshold.
Participants will be required to identify and report annually their
electricity, gas and fuel-related emissions. Domestic housing and
transport emissions will not be included in the scheme. Participants
will be required to surrender a CRC allowance for every tonne of carbon
dioxide emitted as a consequence of their reported energy supplies.
Allowances can be bought from the annual Government sale or from the
secondary
market.
We
have also created an additional safety-valve, buy-out mechanism. The
floor price of that mechanism will be increased from the £12 per
tonne of CO2 originally proposed to £14
per tonne of CO2 to ensure that it is used only as a last
resort. That is provided for in the recently published regulations that
are to be made under the Finance Bill of 2010, which will be laid
before Parliament shortly.
After each
year, the Environment Agency as the scheme administrator will publish a
league table ranking participants by how effectively they reduce their
emissions and become more energy-efficient. CRC will be broadly
revenue-neutral to the Exchequer. All revenue raised from the annual
sale of allowances will be recycled back to participants according to
how well they perform in the league table.
Mr.
Oliver Heald (North-East Hertfordshire) (Con): One of the
concerns expressed about the European emissions trading scheme relates
to price volatility. To what extent does the Minister think that that
will occur in the scheme that she has outlined? Or does she feel that
the mechanism that she began to describe will stop that from happening?
Businesses will want to be able to plan, and knowing what the prices
are likely to be is part of that.
Joan
Ruddock: We agree very much with what the hon. Gentleman
has said, which is why we have an introductory phase. We are aware that
many organisations will have no experience of trading, so it is
important that they have a period when they can get used to the idea.
We have begun with a whole year of reporting only so that they begin to
understand how much energy they are using and where it is coming from.
Then we begin with a phase in which they have to buy allowances, which
will be next year in 2011. At that point, they will know the fixed
priceit has already been announced that it is £12 per
tonne. That will continue until 2013. For that period, people will be
helped to be able to report and trade effectively, with certainty of
price. Beyond that, it is important to begin what is at the heart
of the trading scheme, which is increasing the pressure to make it more
competitive, so that it results in real reductions. From 2013, there
will be auctioning of allowances, which will introduce price
volatility, as it is supposed to do.
Mr.
Tim Boswell (Daventry) (Con): Further to that helpful set
of exchanges, will the Minister tell us whether the intention in
drawing up the league table is to produce one that is differentiated by
sector? I declare an interest because I am a governor of a university.
The situation in the university sector, where we do not benchmark
against each other on academic and other concerns, may be very
different from that of a commercial undertaking or a Government
Department. Can the Minister assure us that at least some
acknowledgment will be made of the difference in character between the
various organisations, with possibly a slight tweak in the incentives
pattern according to their particular
needs?
Joan
Ruddock: I understand the concern that the hon. Gentleman
raises. We have looked carefully at whether the scheme should be
sectoral. It is not too complex, but it is a new thing for many
participants, and we do not want to make it more complex than it needs
to be; that is why we have not gone down the sectoral route. However,
the scheme will be carefully monitored, and we will look at how well it
works. If people perceive unfairnesses, they will raise them, and we
will ask ourselves whether we need to do more. Having said that, people
will probably look to comparators within their sector, rather than
saying that their university must be compared with
Tesco.
It
is important to stress that the league table idea found favour in the
consultation and that, increasingly, the public are concerned about
such issues, so organisations whether universities or private
companiesprobably have some sense that it is to their advantage
to demonstrate their good works. That, and financial incentives, are
provided for in the league
table.
Simon
Hughes (North Southwark and Bermondsey) (LD): The matter
of league tables was discussed widely in the consultation. It was
obviously a controversial issue. Following the intervention of the hon.
Member for Daventry, I wish to support the proposition that, ideally,
comparing apples with apples and pears with pears would be a better and
more useful incentive. Secondly, the trial year runs from this April to
next April. If it became more clearly the consensual view that a
sectoral approach should be taken, would it be possible, by the
beginning of the real operational yearnext yearto move
to that sectoral definition? Thirdly, given that all Departments will
be included, will all local government organisations and all quangos be
included in the
operation?
Joan
Ruddock: On the first point, if we wanted to amend the
scheme in any way after the first reporting year, I would be surprised.
After a year, we would not have enough experience, so such action would
be premature. I am not suggesting that there is a likelihood
that that would happen, and as I have said, the scheme will be
monitored. We want it to work. We want to be reasonable, but we would
not get enough experience within 12 months.
As for what
will be covered, 6,000 MWh is the threshold to which I have referred.
Beyond that, all Departments will participate. We have taken powers
that enable us to include local authorities that would not otherwise
meet the definition. The only use of that power that we have
anticipated is on the Greater London authority. Obviously, we have been
in contact with the Mayor of London. He is content that the GLA should
come within the provisions of the CRC. That is desirable essentially
because it must be able to save energy and money, but equally, as I am
sure that the hon. Member for North Southwark and Bermondsey would
agree, as this is a reputational issue, it would look strange if the
authority, which runs our capital city, did not participate and
demonstrate its leadership role. That is the reason for the
provision.
The
scheme has been designed to overcome the three main barriers to energy
efficiency. The league table overcomes the barrier of unclear
reputational incentives. It will provide clear evidence of which
organisations are the most energy-efficient. That information will be
available to investors, the public and other companies procuring goods
and services. For the first time, energy efficiency will be a
reputational issue. During our consultations on the scheme, the
reputational driver was the focus of most potential
participants
attention.
Another
barrier that we must address is the split incentive between landlords
and tenants; that is a genuinely difficult area. We have chosen to
assign the responsibility for reducing emissions to the landlords when
they manage the contract with the electricity supplieran
important linkage. Landlords in the commercial sector currently have
few, if any, incentives to help keep the energy bills of their tenants
down. Officials have met representatives of both landlords and tenants
and have carefully considered the options. The CRC will introduce the
incentives that we believe are necessary to tackle the landlord-tenant
area.
The
lack of financial incentives is countered by revenue recycling, which
adds an incentive on top of savings on energy bills for high
performers. Another barrier that I identified is organisational
inertia. That is addressed by the CRC, which we believe will bring
energy efficiency to the attention of the senior management via the
rankings in the league tables, and through the financial demands of
planning for the CRC and the introduction of energy efficiency
measures. It is expected that the need to plan for and purchase carbon
allowances will gain the attention of financial directors in a way that
an incremental carbon tax, for example, would not. The requirement for
the up-front purchase of allowances each April is specifically intended
to make organisations plan, rather than deal with the consequences when
the energy bills are paid, as currently happens. Finally, the fact that
an organisations energy efficiency choices directly impact on
how much money will be recycled to them provides a novel financial
incentive that is already drawing a lot of attention from potential
participants.
The unique
combination of financial and reputational drivers will bring the CRC
and energy efficiency to the attention of boardrooms across the
country, and will do so more effectively than other policy approaches.
By targeting the CRC on overcoming the barriers that have blocked
progress in this area for so long, we are confident that by 2020, it
will have delivered emissions savings of at least 4 million tonnes of
CO2 a year and financial savings for participants of around
£1 billion a year.
We listened
carefully to stakeholders during three rounds of consultation, and
amended the scheme to improve its focus on energy efficiency and allow
greater flexibility for participants. In the latest consultation, we
received 276 responses from a wide variety of organisations, such as
potential participants and their sector associations. Some 68 per cent.
of the responses supported the proposed policy. My officials, the
Environment Agency and I have presented at, or hosted, around 140
events in the past year to consult on and raise awareness of the
scheme. My experience of meeting stakeholders was that many recognise
the opportunity and the financial and reputational advantages that the
CRC
presents.
The
CRC energy efficiency scheme is an innovative, groundbreaking scheme
that will drive forward energy efficiency. Too many organisations have
ignored the possibilities for too long, and taking action will be good
for the environment and, I believe, the
economy.
10.47
am